Archive for March, 2008 Page 2 of 4
March 18, 2008 6:17AM
By Alexis Glick
It’s been 24 hours and some of the dust has settled. Given the fate of one of the world’s largest investment banks, I think the market held up very well. In fact, I would give Bernanke and Paulson a high five if I saw them in person for what they orchestrated this weekend. By cutting the discount rate on Sunday evening and offering a six-month lending facility to both commercial banks and investment banks (otherwise known as primary dealers), they truly put a floor under the major banks and broker dealers. The stocks may not have reacted that way in trading yesterday,y but part of their underperformance yesterday was due to the ongoing fear about further writedowns and earnings. Goldman Sachs (GS) and Lehman (LEH) report today. Morgan Stanley (MS) reports tomorrow. Expectations on all accounts are not good. The one to watch will be GS. They have been the gold standard. Any cracks in their numbers and the market could get rocked.
As I’ve mentioned in past blogs or as you can see on my bio, I worked on Wall Street for eight years at Goldman Sachs and Morgan Stanley in their equities divisions. We made money by taking on risk. The commission rates today are a fraction of what they were 10 years ago because the execution business is now almost entirely electronic. Many on the buy-side (mutual or hedge funds) can do their own trading and many on the sell-side (investment banks) already have intricate technological systems and algorithms in place.
If there is one take away from Bear Stearns, it is that leverage and risk are a dangerous game! Where will Wall Street make its money in the future? Without risk and leverage, I don’t see how banks can. Believe me, there will be layoffs everywhere. There will be cost cutting initiatives. VAR (Value at Risk), a measurement many on Wall Street use to make sure that risk levels are in place and properly hedged will be scrutinized. Boards will want to know which divisions have more risk than others. Complex derivatives and securities will change and transparency with the customer will be crucial. So you tell me: How will Wall Street make money for the next couple of years?
March 17, 2008 9:43AM
By Alexis Glick
This morning on Money for Breakfast I talked with Lyle Gramley, a former Fed governor, and he had a lot to say about the Fed’s intervention in the financial markets.
Gramley said the Fed has been acting very aggressively since the middle of January to help ease market turmoil. “I think it’s pulled out all stops to prevent a meltdown; I don’t think we should put the blame on the Fed for what has happened. I think the Fed is responding very, very well.”
“It’s rather like what you face if you have cancer, and you need to take chemotherapy; you know there are going to be some bad side effects, but the alternative is that if you don’t do it — you’re going to die. And I think that is the situation which the fed found itself in, it really had no alternative,” he continued.
How bad does he think things will get? “The worst case scenario is that we just get into a total economic and financial meltdown and we have no way to prevent a really massive recession. I don’t think that is going to happen, I think the Fed is moving aggressively, I think we might have to get more taxpayer money involved by getting the federal government directly involved in taking some of these bad mortgages out of the market one way or another,” Gramley said.
Watch the full interview below, he offered a lot of good information. What do you think about the Fed’s intervention?
March 17, 2008 6:23AM
By Alexis Glick
Last Monday morning on Money For Breakfast in our America’s Biggest Business Rivals series, (which we air every Monday), we profiled Bear Stearns vs. Lehman Brothers. To say that the decision to pit them against one another was slightly controversial is an understatement! We contacted both Bear Stearns and Lehman Brothers to make sure that we had all of the proper history on the each of the respective companies. Lehman, once they understood what we were doing, was not happy with us! They felt a comparison to Bear Stearns was inaccurate and that the proper comparable was Goldman Sachs.
After contacting several of my colleagues on Wall Street (who covered the broker dealers as Wall Street analysts), studying their history and reviewing their financials, I made the determination that BSC vs. LEH was the right comparison in this group. Was it a perfect comp? No. Lehman’s market capitalization at the time was three times that of Bear Stearns, Lehman was not at risk of insolvency and Lehman placed much higher on almost every table measuring mergers and acquisitions, fixed income and equities. But America’s Greatest Business Rivals is not just a measure of today. It’s a measure of the history of two companies, how they have competed with one another throughout history, their corporate culture and their brand.
They’re both run by iconoclasts, started and were primarily known for their fixed-income businesses and were the smaller broker dealers in the business with less global exposure than some of their counterparts.
As we wake up this morning and read the headlines about J.P. Morgan’s acquisition of Bear Stearns, rumblings about whether Lehman is next have begun to take center stage. Lehman will report earnings tomorrow. What happened to Bear Stearns in the early part of last week happened to Lehman on Friday. In the credit-default-swaps market on Friday morning, Lehman’s paper widened by 65 basis points in the wake of the Bear Stearns news. The implied volatility in Lehman’s options shot up 76% to 113.8% with record level put buying in the March contracts at 35, 40 and 45. What does this mean? Investors (whether they be hedge funds, individuals or owners of the stock) are worried about the financial health and well being of Lehman. They are buying downside protection by purchasing puts and betting that the stock will go lower. The implied volatility, which measures sentiment, and activity in those options shot up because the level of put purchases spiked. Remember when we talk about the VIX or the Volatility Index, we talk about the measure of volatility or downside protection in the market. Watch VIX prices today. When the VIX spikes, the market tends to the opposite. It may signal that we are near a bottom!
March 17, 2008 6:09AM
By Alexis Glick
Today is a sad day!
JP Morgan, as expected, is acquiring Bear Stearns.
This morning, many will argue about whether the Fed did the right thing by bailing out Bear Stearns. Thirty billion dollars is a high price to pay. Others will argue about what lead to Bear Stearns decline and who might be next. Some will suggest Jamie Dimon orchestrated a brilliant deal.
What about the people? The 14,000 people that Bear Staerns employs around the world. The human capital!
In the summers of 1992 and 1993, while attending Columbia College, I worked for Bear Stearns. It was an experience that I’ll never forget.
The first summer I worked for Nelson Fleishman, a managing director, in the retail brokerage business. He was larger than life! Everyone in the building knew him! He worked hard, came from nothing, was dedicated to his trade and taught me so much about the business. He was the first person to ever mention the word Series 7 (it’s an exam you take to become a licensed broker). If it were not for him, I may not have had the passion to pursue a career on Wall Street.
The second summer I worked for Howie Rubin, former senior managing director and Head CMO Trader. What is a CMO? A Collateralized Mortgage Obligation is a security backed by a pool of mortgages with different classes of bondholders, maturities and risk profiles. Howie was a legend in the mortgage-backed securities markets. He was the Mick Jagger of mortgage-backed securities. He had no fear, took some of the biggest risks on Wall Street, was aggressive and was not afraid to ruffle feathers. Some suggest his departure from Merrill Lynch to Bear Stearns cost the firm hundreds of millions of dollars. He used his Harvard Business School degree and his Chemical Engineering degree from Lafayette College to do things in the mortgage business that no one could do. He is credited with being the first person on Wall Street to price a CMO with Fannie Mae. Looking back it was ground breaking. It changed the shape of the mortgage securities business.
I can still remember it now. The group that I spent most of my summer with was called F.A.S.T. Financial Analytics and Structured Transactions. We studied the different tranches or classes of mortgages for prepayment risk, among other things. While I was there we did a tremendous amount of research on asset-backed securities (securities backed by assets other than mortgages) as well. It was the best time to be there. They were making money hand over fist!
I know these are personal stories and many people will be very angry at Wall Street today. People like Nelson and Howie were legends on Wall Street. People in the business used to say that Bear Stearns was made up of mavericks. They took tremendous risk, were known for their mortgage-backed securities business (one of the biggest in the industry) and were exceptionally loyal. They made their share of mistakes and the culture changed over the years. People still talk about “Ace” Greenberg, the former chairman, who walked the floors. His desk sat directly on the edge of the trading floor. Bear Stearns was not about glass doors and hierarchy, it was a group of entrepreneurs and everyday people. Today that history and those people will experience a changing of the guard. If only things were different, if only they didn’t do the things they did, if only they were more conservative on their bets, if only they had the foresight to see this coming.
Where will those 14,000 people go?
March 14, 2008 7:44AM
By Alexis Glick
So I ran into the office first thing this morning and thought who won last night’s raffle? If you don’t remember the story, take a look at my last blog. It was about a home that was being raffled off in Washington County, Md., and the proceeds were being donated to the San Mar Children’s home.
Get this: The county clerk won! His name is Dennis Weaver and he bought one ticket!!
When they called his name he said, “Oh my God. I just did it to help San Mar. I bought my ticket early when this first started.” He’s not sure yet what he will do with the home. He will have to pay some taxes on it.
The raffle which took place at the Beaver Creek Country Club, not far from the auctioned-off home, and was a huge success. They sold 6,200 tickets and San Mar made close to $200,000.
When Karen Crawford, the owner of the home and the one who came up with the idea to raffle the home and give the proceeds of the raffle to the children, was asked about the results, she said, “I’m amazed at how this small idea has become such a roaring national sensation.”
Isn’t this a great story? This is why we live in a place called America. Where there’s a will, there’s a way!!!
March 13, 2008 11:00AM
By Alexis Glick
Try this one on for size! Imagine this you could purchase a home by buying a $100 lottery ticket! Sound too good to be true? Depends on how you look at it.
Karen Crawford, a resident of Baltimore spent two years trying to sell her home with no success. Several months ago she read an article in a local newspaper about a farmer in Ohio who decided to raffle off his farm. She decided to approach the San Mar Children’s Home with a proposition. They would agree to purchase her home for the appraised value and in return, the proceeds for every raffle ticket would go to the children’s home. The home takes care of 41 young girls who have been displaced from their homes. Karen is a teacher.
The house at 13607 Indian Springs Road near Big Pool (not sure where that is) is next to a trout stream and surrounded by 1,500 acres owned by Western Maryland Hunt Club. It has four bedrooms, three baths, a great room, a fireplace and it’s on 3.2 acres. Sounds dreamy right?
Take a look at the video below. I interviewed Karen and her real estate broker Cynthia Moler this morning. She’s a remarkable woman
Well a couple quick points. The raffle ends today and the winner will be announced this evening so if you want to buy a ticket, now is the time. Also note that you won’t get it for $100, you will have to pay closing costs and taxes. Some estimates have them in the triple digits, as in, north of $100,000 territory. I’m assuming capital gains may factor in, but do your homework. Finally, there are four other prizes, 2nd prize a car, 3rd prize is furniture, 4th prize is an oriental rug and the 5th prize is $1,000.
If you want more details, go to their Web site www.sanmarhome.org.
March 13, 2008 10:55AM
By Alexis Glick
As promised in my last blog, here is a recap of what Northrop Grumman chairman & CEO Dr. Ron Sugar said about the US Air Force’s $35B contract with EADS/ Northrop and Boeing vice president of Tankers Programs, Mark McGraw’s response. Note the last question I asked both of them about the Government Accountability Office’s (GAO) review and whether they would be open to Congress recommending a new proposal to split the deal between Northrop and Boeing. They had VERY different responses!
March 13, 2008 6:23AM
By Alexis Glick
Good morning everyone! It’s just about 5:30 in the morning and, wow, I just read our rundown (list of guests appearing on our show) and this is a show that you don’t want to miss. We are talking to an author who wrote a book called “Testosterone, Inc: Tales of CEOs Gone Wild.” He is going to tell us about some of the biggest scandals in business and politics and how these scandals affect the companies or governments involved. Very cool!
We’re also talking to a woman in Baltimore who, get this, is raffling off her home. She has sold more than 5,000 tickets for $100 each and tickets have been purchased by people all over the world, including soldiers in Iraq and Afghanistan.
Then fasten your seat belts, we are talking to the Chairman and CEO of Northrop Grumman and then the Vice President of Tanker Programs at Boeing in the wake of the U.S. Air Force’s decision to award the contract to NOC for the KC-45A aerial refueling tanker. Boeing is challenging the decision. The contract could be worth as much as $100 billion over the years.
Tune in 7-9am Money for Breakfast. I’ll bring highlights and behind the scenes analysis as soon as I can.
March 13, 2008 6:19AM
By Alexis Glick
A couple of hours after yesterday’s show, I received an email from the Premier of Saskatchewan. I interviewed Premier Brad Wall earlier yesterday morning on Money for Breakfast about the country’s natural resources, its reaction to the threat by the Democratic candidates to invoke the six-month termination clause on NAFTA if the deal is not renegotiated and why he was down in Washington, D.C., meeting with some very powerful politicians including Secretary of Energy Samuel Bodman.
Do you know where Saskatchewan is located?
It is in Canada and its southern border touches Montana and North Dakota.
Why is it well known?
It’s the world’s largest uranium producer and produces roughly 25% of the world’s uranium supply, which provides electricity to one out of every 15 American homes.
It is also the Country’s second-largest oil producer and the United States’ largest and most stable supplier of oil and natural gas. It produces more oil a day than Kuwait and 62% of its exports go to the U.S.
Why do you care?
Aside from the risk of a global oil shortage, it is one of our major NAFTA partners.
Just after our interview I asked him if Canada was responsible for the loss of American jobs. He said the vast majority of jobs in his country and ours are going to Asia. Here are some quick statistics that he sent over.
From 1993-2006, U.S. merchandise exports to Canada and Mexico grew more rapidly — at 157% — than its exports to the rest of the world, at 108%.
Canada and Mexico are the first and second largest export markets of U.S. goods accounting for 35% of total U.S. exports.
The U.S. government estimates that an average family of four has earned $350 to $930 in annual benefits both from an increase in national income as well as reduction in taxes resulting from NAFTA.
March 12, 2008 6:38PM
By Alexis Glick
After watching the wall-to-wall coverage of Governor Spitzer’s resignation today, I can’t help but think about the great irony of this moment. Here was a man at the top of his game. He made many enemies along the way, but he also did some real good. He was the people’s advocate, the individual investor’s advocate. He was thought to be a future presidential candidate. He seemed unstoppable — much to the chagrin of his enemies. But somewhere along the way things changed. Allegations of wrong doing plagued him from the very beginning of his term as governor, and now this stunning revelation that he participated in a prostitution ring.
When I got into work this morning, I did what I always do — read my research. Every morning, around 4:30 A.M., I receive about nine packets of research for all of my live guests and do my homework. (For those of you not familiar with television lingo, a packet is a 10-20 page synopsis of the guest, topic and some proposed questions and research.) I have a little over two hours to get ready and read all the packets and headline news.
Before I read my packet on Spitzer this morning, I looked up the word karma. Dictionary.com listed several definitions: “The cosmic principle according to which each person is rewarded or punished in one incarnation according to that person’s deeds in the previous incarnation. Fate, destiny. The good or bad emanations felt to be generated by someone or something.” Was this a case of karma?
Today, Spitzer’s closest confidantes are still reeling. Everyone who knew him (and I know many people who are very close to him) said he was the last guy in the world who they thought could do this. While we all have our different opinions about the appropriate penalties levied against him in the coming weeks and months, the person that I am in awe of is Silda Wall Spitzer. The mother of his three teenage daughters who stood by his side today after 20 years of marriage. A very, very smart woman who attended Harvard Law School and worked for one of the best known law firms in the world at the beginning of her career (Skadden Arps Slate Meagher & Flom), and specialized in mergers, acquisitions and corporate finance. Talk about ironies!
This morning, I had the pleasure of interviewing Melanie Sloan, a former federal prosecutor and current Executive Director of Citizens for Responsibility and Ethics. I also interviewed Eric Dezenhall the CEO of Dezenhall Resouces — an image, PR and crisis management company. We talked about Spitzer’s legal options and about his reputation and how he could repair his image. They were great guests and I urge you to watch this video (below). One point that Eric made resonated while I watched today’s press conference. He said that most people with extreme power and hubris cannot accept responsibility for their actions. It takes them much longer to digest what they have done. Any ounce or sign of humility is rarely immediately transparent.
Today, I wanted Spitzer to show some emotion — to disconnect from the script, to show us some sign that he is human, to give his wife some gesture of hope. That’s not what I got and I was gravely disappointed. Women in offices and homes all over the country are talking about Silda. They’re applauding her for having the guts to stand next to him, and yet they’re asking themselves this: Would I stand next to my husband if he did this to me? Why is it that the wife always has to stand next to the husband or politician in this case and show a united front? Might it be his responsibility to appear in front of the press on his own? I wonder what she was thinking about as she stood there. What would Eric, the image consultant, say about her poise and elegance?
Click here to watch the video:
